Sector Rotation Stocks and the Indices

Over the past couple of weeks, TICK has signaled potential rotation between stocks and sectors. In addition, new highs have remained above the zero line, as new lows are fewer in number. Most of the rotation out of healthcare was very obvious this week, as device makers, healthcare providers and biotech slid after Bernie Sanders comments hit the wires.

New Highs and New Lows

As new highs outperform, histogram remains above the zero line. The moving average continues a bullish cycleointing out a stark difference between the indices this Spring, versus Fall/Winter 2018.

Consider the above graphic for a moment.

Many traders are thinking, as well as yours truly, that the S&P 500 is nearing a double top, showing potential for a pullback. Junk and High Yield Corporate Debt, small caps (IWM) and biotechs are weakening. Therefore, we anticipate a double top would be the likely outcome, if not for rotation.

Sector Rotation and Stocks

Considering the above brief analysis, there is another possibility we need to consider. Rotation is apparent. We’ll focus on these sectors.

Industrials, transports, communications and media, financials, technology and consumer discretionary are strong, showing signs of rotation. Trade these sectors if you’re looking for new positions.

Healthcare, biotech, utilities and real estate will most likely weaken further. Therefore, if we have any positions in these sectors we will monitor, sell premium as hedges (covered calls) or exit entirely if weakness persists in our open positions.

Strength in banks is very apparent, and not only in the U.S.

Bank of Montreal (BMO) and Royal Bank of Canada (RY) are strong. The latter broke above resistance on Wednesday. Relative strength lines are climbing for both stocks. Therefore, BMO will most likely breakout this morning and follow RY.

Join us today in the trading room for our LIVESTREAM broadcast during market hours, as we trade banks and other new positions in strong sectors. Watch, listen and trade from 9:20 AM to 4:15 PM Monday through Friday.

Happy Trading,

Vinny

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Futures are mildly green, after weak manufacturing data out of Europe.

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*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities. 

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